Will Elevidys Approval Make Sarepta Stock An Acquisition Target?

SRPT: Sarepta Therapeutics logo
SRPT
Sarepta Therapeutics

The stock price of Sarepta Therapeutics (NASDAQ:SRPT), a biotech company focused on the discovery and development of RNA-targeted therapeutics and gene therapy for the treatment of rare diseases, was up 30% on Friday, June 21. This move came after the company secured the U.S. FDA approval for its Duchenne muscular dystrophy (DMD) gene therapy – Elevidys – for all patients aged four and older. Elevidys was earlier approved in 2023 for the treatment of ambulatory pediatric patients aged four through five years with DMD. The new approval expands its usage to boys above the age of four.

Duchenne is a type of muscular dystrophy, mainly affecting boys, with symptoms beginning around the age of four. Elevidys is a single-dose infusion, usually given to children in the early stages of the disease. It costs around $3 million per treatment, and there are roughly 15,000 cases in the U.S. alone. Outside of the U.S., Roche (OTCMKTS: RHHBY) has the marketing rights, and it is pressing for an accelerated approval in Europe.

Now, given the high cost of Elevidys, it may be challenging for Sarepta to expand meaningfully in the market. The peak sales for Elevidys is estimated to be $3 billion to $4 billion by 2027. [1] This development boded well for its stock.

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However, if we look at a somewhat longer term, SRPT stock has seen little change, moving slightly from levels of $170 in early January 2021 to around $160 now, vs. an increase of about 45% for the S&P 500 over this period. Overall, the performance of SRPT stock with respect to the index has been quite volatile. Returns for the stock were -47% in 2021, 44% in 2022, and -26% in 2023. In comparison, returns for the S&P 500 have been 27% in 2021, -19% in 2022, and 24% in 2023 — indicating that SRPT underperformed the S&P in 2021 and 2023.

In fact, consistently beating the S&P 500 — in good times and bad — has been difficult over recent years for individual stocks; for heavyweights in the Health Care sector including UNH and JNJ, and even for the megacap stars GOOG, TSLA, and MSFT. In contrast, the Trefis High Quality (HQ) Portfolio, with a collection of 30 stocks, has outperformed the S&P 500 each year over the same period. Why is that? As a group, HQ Portfolio stocks provided better returns with less risk versus the benchmark index; less of a roller-coaster ride, as evident in HQ Portfolio performance metrics.

Given the current uncertain macroeconomic environment with high oil prices and elevated interest rates, could SRPT face a similar situation as it did in 2021 and 2023 and underperform the S&P over the next 12 months — or will it see a strong jump? Despite its recent 30% move, we think that Sarepta may continue to see higher levels going forward. The market size for Elevidys is large, and the peak sales estimates will likely be revised higher over the next few quarters, depending on how the drug performs. More importantly, with an approved blockbuster drug in its kitty, Sarepta will likely be an acquisition target by larger pharmaceutical companies, especially the ones who face or are about to face biosimilar competition for some key drugs.

For example, Pfizer (NYSE:PFE) recently failed in its late stage clinical trial for its DMD gene therapy. The company has seen its stock witness a sharp 25% decline in the last twelve months, amid its falling sales. Pfizer’s revenue rose from $41.7 billion in 2020 to $100.3 billion in 2022, as the Covid-19 outbreak resulted in widespread demand for its vaccine and antiviral treatment. But this trend reversed, with Pfizer’s 2023 sales falling 42% y-o-y to $58.5 billion. The sales continued to decline and stood at $54.9 billion for the last twelve months. Pfizer has been looking at inorganic growth, and it acquired Seagen for $43 billion last year. Seagen is expected to contribute $10 billion to the company’s top-line by 2030. Note that Pfizer’s debt increased 2x to $72 billion now, compared to $36 billion in 2022, owing to the Seagen acquisition, and it may not be eyeing a very large acquisition to keep its debt levels in check. Sarepta at a $16 billion market capitalization may look attractive to some large pharmaceutical players, given a reasonable ticket size. Overall, we think that despite its recent run, Sarepta stock looks like it has more room for growth from here.

While SRPT stock may see higher levels, it is helpful to see how Sarepta’s Peers fare on metrics that matter. You will find other valuable comparisons for companies across industries at Peer Comparisons.

Returns Jun 2024
MTD [1]
2024
YTD [1]
2017-24
Total [2]
 SRPT Return 24% 67% 486%
 S&P 500 Return 4% 15% 144%
 Trefis Reinforced Value Portfolio 2% 7% 657%

[1] Returns as of 6/24/2024
[2] Cumulative total returns since the end of 2016

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Notes:
  1. US regulators give go-ahead for muscle wasting treatment costing $3mn, Oliver Barnes, Financial Times, June 21, 2024 []